The UK Government’s ‘no deal’ Brexit papers: the impact on energy
Posted in Energy
The UK Government recently published a number of advice notices to industry, providing guidance to businesses and citizens as to what they would need to do in a ‘no deal’ scenario. Whilst the Government states that a no deal scenario remains unlikely given the mutual interests of both parties, the advice notices ensure businesses and other stakeholders are able to prepare for all eventualities.
A summary of key points is insofar as they impact on the energy sector is set out below.
Generating low-carbon electricity if there's no Brexit deal
Key points from the advice notice generating low-carbon electricity if there’s no Brexit deal are as follows:
- Guarantees of Origin (GOs) of electricity produced from high-efficiency cogeneration / Renewable Energy Guarantees of Origin (REGOs) – in a ‘no deal scenario’, the UK Government will continue to recognise GOs and REGOs issued in both Northern Ireland and EU countries, however GOs and REGOs issued in the UK will no longer be recognised in the EU. This will mean that existing contracts with EU countries’ electricity suppliers or traders may be compromised if the contract terms require a further transfer of a GO or a REGO recognised by the EU;
- certification of installers of certain microgeneration technologies – the UK will continue to recognise installer certificates issued by European Economic Area (EEA) states which meet the criteria in Annex 4 of the Renewable Energy Directive, however certification issued to installers in the UK will no longer be recognised in EEA states. As requirements are likely to differ between EEA states, UK installers should seek advice on the requirements in the states in which they are operating;
- Renewable Electricity Support Scheme: receiving support for generating renewable energy if there’s no Brexit deal – in a ‘no deal’ scenario, the Government will continue to apply all requirements under both the Feed-in-Tariffs Scheme, Contracts for Difference schemes and the Renewable Obligation, including the green import exemptions from the applicable supplier obligations and the sustainability requirements under the RO for bioliquids, solid and gaseous biomass. EU and UK suppliers, renewable electricity generators, consumers or any other interested party will not need to take any action.
Implications for trading gas
Key points from the advice notice trading gas with the EU if there’s no Brexit deal are as follows:
The mechanisms of cross-border trade in a ‘no deal’ scenario are not expected to change fundamentally, with National Grid and Premier Transmission Limited intending to continue to use the PRISMA gas capacity trading platform to allocate capacity at interconnection points.
There will be implications for the way gas is traded with EU Member States however, including:
- changes to access rule approval and trading arrangements – in order to continue using the EU Capacity Allocation Mechanisms (CAM) Code processes (which establishes rules for capacity allocation on interconnector pipes), the approval of regulatory authorities in relevant interconnected Member States is needed. Operators of UK interconnectors are urged to engage with relevant EU regulators, so as to confirm whether those countries intend to continue CAM Code as a basis for their trading with the UK (Ofgem will facilitate this process);
- changes to Transmission System Operator (TSO) certification – operators of UK interconnectors are urged to engage with national regulators, to confirm whether their TSO certification will need to be reassessed. The government has committed to the smooth operation of the TSO certification process and will make any changes or provide clarification if necessary;
- changes to other gas network codes – EU gas network rules are implemented in the UK in the form of the Great Britain Unified Network Code and the Northern Ireland Network Gas Transmission Code, and will remain in place in a ‘no deal scenario’, with amendments as necessary to reflect a no-deal outcome.
Implications for trading electricity
Key points from the advice notice trading electricity with the EU if there’s no Brexit deal are as follows:
Post-March 2019 if there is no Brexit deal, the UK will be decoupled from the Internal Energy Market and European energy law will no longer apply to the UK. This has the following implications:
- cross-border flows of electricity will no longer be governed by EU legislation – as a result, in a no deal scenario, new market access arrangements will need to be developed between the UK and the EU, setting the terms and conditions for trade. Although the majority of the existing Regulation on Energy Market Integrity (REMIT), which prohibits insider trading and energy market manipulation and makes provision for monitoring of the market by regulators, will be maintained in the UK, to avoid disruption to cross-border trade, trade within EU wholesale energy markets or trade within the Single Electricity Market (SEM), market participants are advised to register with an EU regulatory authority for the purposes of market monitoring. Market participants will need to make use of the alternative arrangements developed for purchase and sale of power cross-border which will need to be in place by 29 March 2019;
- Electricity interconnector owners/operators will need to engage with the relevant EU national regulators to understand their processes for the potential reassessment of their TSO certifications;
- changes to domestic codes and licences - it is likely that changes will be required to domestic industry codes (the technical rules of the domestic electricity system) and licences which will be brought forwards by Ofgem and National Grid. See Ofgem’s letter to stakeholders on Preparing for EU exit: licence and industry code modifications;.
- EU rules will no longer apply to Northern Ireland – in a no deal scenario key elements of the SEM will be left without any legal basis, meaning there is a risk that the Northern Ireland market will become separated from that of Ireland. The government are seeking to maintain the SEM, however if an agreement cannot be reached, the Northern Ireland Utility Regulator and SONI, the Northern Ireland Transmission System Operator, will help to mitigate the risks. By using existing, energy-related legal powers, the government is hoping to maintain market operation, although additional powers to preserve security of supply may be necessary.
For further information, see the advice notices available here.
Implications for oil and gas companies
Key points from the advice notice running an oil or gas business if there’s no Brexit deal are as follows:
- implications for the hydrocarbons licensing and environmental protection regime – the established regime for hydrocarbon licensing and environmental protection will continue to operate in a no deal scenario, meaning no action is required by UK and EU businesses. To ensure continuity the government plans to amend the relevant legislation, but this will not affect energy sector businesses.
- oil stocking obligations under the EU Oil Stocking Directive 2009/119/EC and Internal Energy Agency (IEA) – the UK will no longer be bound by the EU Oil Stocking Directive, which requires a high level of oil stocks to be held in comparison to levels required under the Internal Energy Agency (IEA). The UK will continue to be bound by obligations under the IEA however, for 90 days of net imports, and will remain a member country if there is no Brexit deal.
- impact on UK obligated countries holding EU traded tickets – domestically traded tickets will not be affected by the UK’s withdrawal from the EU, but there is a risk that EU traded tickets held by UK obligated companies will be affected in a no deal scenario and companies will lose access to the EU ticket market. The government is hoping to sign a MoU, similar to that already in place for Australia and New Zealand, to ensure that international (inward) ticketing is still possible. However, buyers of such tickets may wish to reduce the number of tickets purchased or consider cancelling existing tickets ahead of 2019 given the possibility of a ‘no deal’.
For further information, see the advice notice available here.